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Indonesian Local Government Spending, Taxing and Saving: An Explanation of Pre- and Post-decentralization Fiscal Outcomes

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  • Blane D. Lewis

Abstract

As a result of Indonesia's decentralization program, local governments have gained significantly more responsibility for service delivery, considerably larger fiscal resources, and much greater authority over the use of those resources than before. The present paper develops a simple budget model to describe and explain the substantial differences in pre- and post-decentralization local government fiscal behavior related to spending, taxing and saving. During the post-decentralization period special attention is paid to the fiscal behavior of natural resource rich regions. Among other things, the evidence suggests that: post-decentralization local government spending is partly responsive to increasing needs and partly the subject of elite capture; local government taxation has become more aggressive under decentralization and appears to be mostly driven by local bureaucratic expectations related to routine overhead budgets; and the increased savings of local governments during the post-decentralization period is determined to a large degree by delayed central government transfer payments. Copyright 2005 East Asian Economic Association.

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  • Blane D. Lewis, 2005. "Indonesian Local Government Spending, Taxing and Saving: An Explanation of Pre- and Post-decentralization Fiscal Outcomes ," Asian Economic Journal, East Asian Economic Association, vol. 19(3), pages 291-317, September.
  • Handle: RePEc:bla:asiaec:v:19:y:2005:i:3:p:291-317
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    Cited by:

    1. Kis-Katos, Krisztina & Sjahrir, Bambang Suharnoko, 2017. "The impact of fiscal and political decentralization on local public investment in Indonesia," Journal of Comparative Economics, Elsevier, pages 344-365.
    2. Sjahrir, Bambang Suharnoko & Kis-Katos, Krisztina & Schulze, Günther G., 2014. "Administrative Overspending in Indonesian Districts: The Role of Local Politics," World Development, Elsevier, vol. 59(C), pages 166-183.
    3. Mumbunan, Sonny & Ring, Irene & Lenk, Thomas, 2012. "Ecological fiscal transfers at the provincial level in Indonesia," UFZ Discussion Papers 06/2012, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    4. Blane Lewis, 2006. "Local government taxation: An analysis of administrative cost inefficiency," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 213-233.
    5. Skoufias, Emmanuel & Narayan, Ambar & Dasgupta, Basab & Kaiser, Kai, 2011. "Electoral accountability, fiscal decentralization and service delivery in Indonesia," Policy Research Working Paper Series 5614, The World Bank.
    6. International Monetary Fund, 2007. "Indonesia; Selected Issues," IMF Staff Country Reports 07/273, International Monetary Fund.
    7. Tirtosuharto, Darius, 2012. "The Impact of Public Capital Investments on the Revenue Growth of Medium Enterprise in Indonesia," MPRA Paper 44063, University Library of Munich, Germany.
    8. Skoufias, Emmanuel & Narayan, Ambar & Dasgupta, Basab & Kaiser, Kai, 2014. "Electoral accountability and local government spending in Indonesia," Policy Research Working Paper Series 6782, The World Bank.
    9. United Cities and Local Governments, 2011. "Local Government Finance," Books, Edward Elgar Publishing, number 14696, April.
    10. Joseph J. Capuno & Maria Melody S. Garcia, 2009. "What difference can performance ratings make? Difference-in-difference estimates of impact on local government responsiveness in the Philippines," UP School of Economics Discussion Papers 200908, University of the Philippines School of Economics.

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